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World Bank risks US wrath with China loans (GlobalCapital)

January 10, 2019

From the article:

Figures published this week by the Centre for Global Development, based in Washington, showed the Bank had lent almost $7.9bn to China since 2016, when China passed the level of per capita income at which it should seek to “graduate” from using World Bank loans.

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Analysis by CGDev showed just 44% of the China portfolio comprised activities that were clearly focused on global public goods — mainly pollution control and sustainable infrastructure — or designated strictly as capacity building.

Scott Morris, a senior fellow at CGDev and lead author of the study, said that although the figures mainly included loans before the 2018 agreement, it showed the extent of reform the Bank would have to do.

“If we were to apply a test, the Bank should be either concentrated on the lower income provinces or should meet a global public goods test in higher income provinces,” he told GlobalCapital.

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Morris argued that while borrowing on this scale deserved scrutiny, it was important the Bank did not shut off lending to China. “The world has a lot to gain from the World Bank’s relationship with China, so the conversation should be more about modulation and less about graduation,” he said.

“A substantial portion of Bank lending to China is aimed at reducing carbon emissions,” Morris added. "As the world’s largest polluter, China must be at the forefront of any meaningful progress on climate change, and if the World Bank can help provide the right incentives for that, we all stand to gain."

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“World Bank lending and technical assistance to middle income countries allows us to gain and share knowledge globally and help find solutions to issues that affect us all, in line with our goal to end poverty and address global challenges.”

Morris acknowledged that the report risked fuelling anger in the Trump administration, as China continues to pour money into its One Belt One Road (Obor) initiative.

“The fact that China is one of the World Bank’s largest borrowers at the same time that it lends billions of dollars to developing countries under Belt and Road has become a political thorn in the side of the Bank and has raised the ire of countries like the United States,” Morris said.

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Morris said he believed China would make concessions, such as agreeing to pay higher interest rates on World Bank loans, to ensure a positive relationship. “A more focused relationship, and one that frankly asks more from China in terms of interest charges on loans, can help lower the political heat and put things on a sustainable and productive path,” he said.

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Photo of Scott Morris
Senior Fellow, Director of the US Development Policy Initiative